Global inflation watch: Tariff pass-through still in progress

Overview: Inflation picked up speed in August across major economies, though still very moderately. Inflation expectations continue to diverge between the US and the rest of the world. In the US, tariff costs are slowly making their way through the economy, but impact on final consumer prices has so far been limited. In the euro area, both realized and expected inflation hover pleasantly close to the 2% target. Oil prices remain relatively stable despite the uncertain geopolitical landscape.

Inflation expectations: Both survey and market-based inflation expectations measures have remained relatively stable over the past month. Short-term US expectations remain elevated due to the tariffs, but longer-term expectations are well anchored on both sides of the Atlantic.

US: August CPI came out just slightly above expectations, headline inflation was +0.38% m/m SA (2.9% y/y, cons. +0.3%, July +0.2%) and core inflation +0.35% m/m SA (3.1% y/y, cons. +0.3%, July +0.3%). The slight acceleration was driven by food and housing services, while price pressures for other services moderated. Importantly, tariff-driven inflation in core goods was still rather limited. The PPI illustrated how retailers and wholesalers first increased their sales margins in July ahead of the tariff announcements and then absorbed most of the increased costs in August. We still expect the Fed to resume quarterly 25bp cuts in September.

Download the Full Report!